"The Employment Maximizing Import Quota Under Domestic Monopoly"

We consider a domestic monopolist who is protected by an import quota on the product he produces. He faces a domestic demand curve which is characterized by a constant price elasticity. He is unable to export and has an upward sloping marginal cost curve. We demonstrate that in this case his employment of labor rises with the import quota until imports rise to a fraction 1/e of domestic output where e is the elasticity of domestic demand. Thus, the employment maximizing quota sets permissible imports at a fraction of domestic output which is at least as high as the reciprocal of the elasticity of demand. We also make a case for liberalizing all the way right away, “cold turkey liberalization.”

Duke Scholars

Author Edward Tower Economics